Fintechs — a 'shoal of piranhas' — have forced banks to switch from 'compete to collaborate'

Financial technology — commonly known as fintech — is not only
transforming the way consumers operate, is also a huge threat to
the traditional banking industry.

Think about TransferWise,
one of the few British tech unicorns (private companies worth
over $1 billion), and PayPal when it comes to payments and
peer-to-peer matching services. Or how about the blockchain — the
technology that underpins bitcoin. Or online-only banks?

All in all, the way we bank and pay for things are completely
different from 20 years ago.

But the biggest shift in banking industry during the tech
revolution is the switch from complacency to collaboration, said
Richard Lumb, the CEO of Accenture’s financial services business
to Business Insider on the sidelines of the World Economic Forum
in Davos, Switzerland.

Lumb is very well placed to make this assumption. He has spent
over 28 years developing strategies and business models for
banks, brokers and other financials but at the same time helps
run the annual FinTech Innovation Lab London, which is a
mentoring programme for startups.

"What I have found interesting is how opinions have changed from
Davos two years ago," said Lumb in an interview.

"Before financials would look at fintech as something that wasn't
as big of a deal, something new and something that wasn't going
to make a difference to their customer bases. But now they
realise there's customer disintermediation and it's not just one
company that's eating at their customer base, it's like a shoal
of piranha fishes nibbling away.

"The only way forward is to collaborate not compete."

It is true. Take a look at blockchain for example.

Blockchain is a name for a protocol underpinning bitcoin that
uses complex cryptography and distributed ledgers, or copies of
records in multiple places, to regulate, record, and enable
transactions using bitcoin.

Richard
Lumb, CEO of Accenture’s financial services business spoke to
Business Insider in Davos for the WEF meeting.Accenture

Right now, if you pay someone in pounds, one bank will have to
get in touch with the other and tell it to update the balance.
Then at the end of the day bulk transactions are moved among
banks, via an intermediary, to make sure everyone has the right
amount of cash.

With the blockchain, all that hassle is wiped out — you just pay
another person directly into a digital wallet. It's blockchain's
novel approach to security that makes this possible.

Banks are hoping they can adapt this technology to let them deal
directly with one another, making things faster, cheaper, and
easier. This would involve either using bitcoin's blockchain or,
more likely, building a replica system — a private blockchain.

But at the same time, while the evolution in fintech is exciting
and is being taken up rapidly by consumers, Lumb told us about
why he thinks collaboration between the fintechs and banks will
actually be beneficial to both parties.

"Collaboration is the only way forward. Both segments need each
other," said Lumb.

"Fintech doesn't necessarily be regulated like a traditional
financial and banks don't want to disintermediate their
customers. A lot of this new technology and the companies that
built them are still in their infancy so banks can help smaller
companies in building a business too," said Lumb.

"I think why people like blockchain technology is because of the
security element. But I guess it's still in its infancy and we'll
see how it develops over the next few years. This year we'll just
see pilot applications and it'll be small scale.

"Regulators must be constantly watching right now (the
development in bitcoin and blockchain) but it's got to come."